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Mayor Michael Nutter answers questions at a press conference outside City Hall this morning just prior to his trip to Harrisburg. The State Senate approved the city budget relief bill this afternoon. (Clem Murray / Staff Photographer)

Inquirer City Hall Staff

After months of agonizing delays, state lawmakers granted final approval today to a temporary Philadelphia sales tax hike and a two-year reprieve on city pension payments, a pair of critically needed measures that plug the final $700 million hole in a multi-year deficit that once stood at $2.4 billion

The legislation, which was just approved by an 32 to 17 vote in the state Senate, will, at least for now, bring Philadelphia’s budget and five-year plan fully into balance, ending a political and fiscal drama that has consumed City Hall for over a year.

The bill — which Gov. Rendell is expected to sign shortly — eliminates the need for Mayor Nutter’s fallback budget, better known as Plan C.

That plan would have closed the $700 million five-year gap through cuts alone. As many as 3,000 city workers would have been laid off under Plan C, and basic services such as sanitation and police and fire protection sharply reduced.

If Harrisburg had not acted today, layoff notices for those 3,000 workers would have been delivered tomorrow. With the vote, their jobs are preserved, and the libraries, recreation centers, courts and facilities that they staff will remain open.

The legislation raises the sales tax in Philadelphia from seven percent to eight percent for a period of five years. The eight percent rate will be two points higher than the sales tax in every other Pennsylvania municipality except for Pittsburgh, where the rate is seven percent.

The other crucial pieces of the bill are pension related. One addresses the city’s immediate cash flow crunch, permitting it to defer payments for the next two years. Those deferrals have to be paid back, with interest, beginning in 2013.

Another key pension provision extends the amortization period from 20 years to 30 years, in effect spreading the city’s pension burden out over a longer period.

Unlike earlier version of the bill, the legislation passed today does not include any statewide pension reforms, nor does it cap or cut back on retirement benefits for current or future Philadelphia employees. Labor leaders had campaigned vigorously against those provisions, and succeeded in convincing the House to delete them from the bill.

Minutes after the vote, Nutter and Philadelphia legislators called senior city officials in Philadelphia. Addressing over 40 of his managers on a speakerphone, Nutter proclaimed: "Plan C is terminated." The managers in Philadelphia erupted in thunderous appaluse.

Moments later, Nutter appeared overcome with emotion as he thanked his staff.

Asked about it by reporters after he hung up, Nutter acknowledged that he was indeed choked up.

“When you think of the magnitude of a what could have happened tomorrow … the magnitude of it is astounding and I think quite honestly that’s why so many people seem to have difficultly grasping what Plan C was all about,” Nutter said.

He said the “greatest thing that has happened is there is a renewed relationship between Philadelphia and Harrisburg.”